Monopolistic competition and optimum product diversity under firm heterogeneity

Morrow, John and Dhingra, Swati (2014) Monopolistic competition and optimum product diversity under firm heterogeneity. Journal of Political Economy . ISSN 0022-3808 (Submitted)

PDF - Submitted Version Restricted to Repository staff only Download (917Kb)

• LSE expert's profile

Abstract

Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. This paper examines the allocational efficiency of such markets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations impact welfare and policy analysis. Market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains.

Item Type:	Article
Official URL:	http://www.journals.uchicago.edu/toc/jpe/current
Additional Information:	© 2014 The University of Chicago Press
Library of Congress subject classification:	H Social Sciences > HB Economic Theory
Sets:	Departments > Economics Research centres and groups > Centre for Economic Performance (CEP)
Projects:	PTDC/EGE-ECO/122115/2010
Funders:	Fundacao para a Ciencia e a Tecnologia (FCT)
Date Deposited:	27 Aug 2014 09:28
URL:	http://eprints.lse.ac.uk/59226/

Actions (login required)

Record administration - authorised staff only